Morale

Morale represents the creature's and army's willingness to fight. Each hero has an army consisting of troops, and the army has a morale rating which acts as a bonus to the individual morale of its troops. Troops in an army with positive morale have a chance for a second action during their action phase. Troops with negative morale have a chance of freezing each round. The morale rating for an army is normally zero.

Undead creatures and elementals have a morale of zero, independent of their army’s morale rating.

Morale gives you a chance for an extra turn with an unit in battle.

The chance of getting a morale is equal to 1/24 * morale value. Note that this can be a negative as well, in which case the unit has bad morale, which causes your units to freeze and skip the turn. A hero's units have double the chance of freezing with bad morale than having a second attack with the same level of good morale. Not correctly documented in the manual. Also, morale modifiers are capped at +3 and -3.

Base morale is what you get from having an army composed of units from certain towns. You get lower base morale the more towns you have units from in your army (Neutral counts as a town)- You start off at +1, and get -1 for each new alignment you add.(So if you have creatures from 3 town types, you have -1 as base morale). Bonuses for having Archangels and/or Undead are not counted here.